Recently, a task force the Asia Society put together published a widely covered (0) set of recommendations for the Trump administration on US policy toward China. Tilted a bit toward the outgoing Obama administration, there are elements that several of my colleagues will heartily challenge — not least the blunt criticism of the initial Trump dissent from the status quo “one China” policy. (Trump has since reversed (1) himself and promised to adhere to the one China policy.)
The interest in this blog concerns the task force’s analysis and recommendations regarding US-China trade and investment relations — and more specifically digital trade and investment. In these areas, I find much with which to agree, notwithstanding evidence of collegial writing and compromise over exact language. First, there is the overall tone of deep concern (2): “There has been a growing sense among US workers and corporate leaders alike that the relationship is becoming increasingly unbalanced and disadvantageous. . . . In China’s growing economy, US companies are facing an ever-more-skewed playing field, particularly in high-tech sectors, where Chinese protectionism has notice ably intensified.”
The task force focused particularly on the high-tech information and communications technology sectors, especially those closely related to the functioning of the internet. It provided a long list of recent Chinese government actions that impaired the ability of US corporations to compete on level grounds, including: investment restrictions, support for national champions, increasing subsidies, weak intellectual property rights, and the resurgence of state-owned enterprises. It charged that these policies (3) “particularly affect a large number of new economy sectors that China seeks to indigenize, ranging from semiconductor design and manufacturing and advanced manufacturing to the entirety of the information technology and communications sector, which has been systemically targeted for indigenization.”
The task force also follows, to some degree, the recommendations regarding cross-country investment policy in my recent policy brief, “Crafting an Action-Driven Response to China’s Digital Trade Barriers (4).” The task force report argues (5) that the “Trump administration should demand reciprocal treatment for US outward investment” in China. Further, “the administration should clearly inform Beijing that the United States may have to restrict or condition inbound Chinese investment . . . until reciprocal restriction are removed on US investment in China.” The challenge for those of us who are urging the introduction of stricter reciprocity will be to calibrate carefully the exact conditions for the imposition of such rules and the particular sectors at issue.
With cyber and digital trade issues specifically, the task force’s treatment is uneven. While it correctly identifies the failure by the US to follow through on the Trans-Pacific Partnership (TPP) as a “self-inflicted” wound because that agreement contained the first legally binding set of trade rules for digital trade, the report does not strongly push for the Trump administration to give immediate priority to these digital market access issues in bilateral US-China trade negotiations, confining itself to the recommendation to “negotiate a new trade agreement on the ‘rules of the road’ for cyberspace.” But it does firmly recommend close follow through on Beijing’s commitment not to knowingly allow cyber theft of US technology.
The task force also raises the possibility of the “threat of sanctions at the right time and the right context,” but it does not tie this excellent recommendation directly to the gravity of the threat described in the same section of the report. To wit (6): “As China’s barriers to market access expand, it appears bent on creating . . . ‘independent, controllable, and secure and reliable’ technologies. These requirements impose onerous burdens on outside companies related to localizing data, sharing source codes, and providing encryption keys as a de facto requirement for market access. To date the Chinese government has been unwilling to negotiate these issues with the United States in any detail. In fact, it seems more determined to build its own domestic information technology and communications ecosystem, a kind of cyberautarky.”
Regarding the multilateral trading system, the AEI report (7) strongly urged the Trump administration to directly attack China’s Great Firewall of censorship. The Asia Society task force is not so bold. It does, however, somewhat less precisely back the use of World Trade Organization (WTO) rules (8): “Use WTO procedures to prepare targeted sanctions if China continues to increase onerous requirements on US information and communications companies seeking to do business in China.” The problem here is that the balance of the Asia Society report has already laid the predicate for immediate action — without waiting further for onerous actions to “[continue] to increase.” As I noted in the AEI report, there is no absolute guarantee of success in attacking the Great Firewall. But even bringing the case in WTO court would likely snap Beijing to attention — and we may well win.
While one could wish that the Asia Society had been less cautious in some areas, there is still much to commend in the report — the calls for revising rather than scrapping the TPP, vigorously enforcing existing US trade remedy laws (anti-dumping, countervail), negotiating a bilateral investment treaty, pushing China to join WTO services, environmental goods and government procurement agreements, and revamping the semi-annual US-China bilateral economic and security dialogue. Not bad for a negotiated document from a team of experts.